One of our main goals in Winning our Financial Freedom is to be able to give with Reckless Generosity. Whether you’ve “won” already or are just getting started, I trust that you are giving even along the various steps in the path. My main point here is to answer the question: “In which country should you be doing charitable giving in order to save the most money?”, but there are some other points we should just mention along the way (without trying to resolve or elaborate).
You might consider a portion of your charitable giving to be self-funding your ministry. One of our biggest goals at Vagabond Finances is to be free to serve in the US or abroad even if our donors can no longer support us or when our organization says we’ve reached the age of mandatory retirement. You may not be in a position to pay your entire salary just yet, but you might consider self-funding your ministry by a small gift each month.
Your country and organization
I hope that you love the country in which you live and the organization with which you serve. It might be a good idea to direct your charitable giving in those directions. I would suggest, however, that you not limit yourself to those two things. Sending your money to a different country through a different organization might just pique your interest and your prayers a bit more. You are serving locally (which just happens to be abroad) but having an impact more globally.
In which country to give
More than to how much to give or to which country or organization to give, I want to focus our attention on the financial benefits of giving in one country over another. I’m assuming that most of us are paying income taxes in our host country and filing taxes in the US as well. In general, unless you are going to make a massive gift or have other incredible deductions to take in a given calendar year, you will not itemize those things and simply take the very generous standard deduction in the USA. That means that all of those little receipts that you saved for a $50 gift to a mission suggested by a loved one who passed away, that $600 you gave to rebuild a war-torn country, and that $75 you gave toward some church’s short-term trip will all end up in the trash at the end of the year. Everyone wants to know if your charity is “tax-deductible,” but Ryan Ellis in Forbes estimates that 90% of Americans will just use the standard deduction in 2018 (post-tax law changes), but that it was already about 75% before that.
However, your foreign home may have a very high-income tax rate and may also allow for the deduction of charitable giving. Do you know the regulations? You’ll want to! Let’s say I wanted to give $5,000 to the Global Save-the-Eggplant Fund (GSEF) because I’m terribly worried about the future of the eggplant. That $5,000 is probably utterly useless to me as a US tax deduction. But it could be worth $500 or even $1,000 in my country of residence, if, that is, I follow the rules of my foreign tax home. You’ll need to look them up for yourself or ask your foreign tax preparer, but here are some common considerations.
Common regulations to consider
Location of the charity
Many countries will only accept charitable donations made to recognized organizations within their borders. Some countries – notably European countries – will often allow the deduction of charitable donations made anywhere in Europe.
So, now that you’ve done your homework and you know that you can deduct for charities only in your country or area, what about that GSEF?
The first step is to simply ask GSEF-USA if they know of any way for you to give in your foreign tax country, Viktorialand, to this eggplant initiative. They may have a totally legal and upright way for you to do this. They may tell you to give to GSEF-Viktorialand. You didn’t even know they had a base of operations in Viktorialand, did you? Or they may have a cooperating organization that does have a base there. Give through them.
Another option would be to find a different organization doing essentially the same work. ERF, for example, is a Viktorialand registered charity that is working on creating a, yep, Eggplant Relief Fund. If you can’t find something suitable or you just love GSEF-USA so much, you can always just give up on the charitable receipt and give the gift in the USA.
There are a few more gray or obscure options as well. Some countries (notably the UK-US) have pass-through organizations that may be able to funnel your giving from one continent to the other and still get you a US receipt. I believe that service comes at a fee.
Here’s one that would be illegal in the US but is considered fine in some countries. You could give to a local charity, like your church, and have them forward the money on to someone with a passion for eggplants. In the US and in many countries, a charity or church can give a limited, one-time gift to a cause or an individual in need. You could explain to the local charity that you’d like to give them $500 and have them pass it on to the person or cause you have at heart. You’d be supporting your passion and getting a year-end receipt. Again, designating funds like this is a no-no for a US charity, so be sure to ask your local charity about this obscure method.
You’ll want to know what is the most money you can give to charity in your foreign country and still deduct it. The limit might be a specific amount or a specific percentage of income (or similar). In many cases, the maximum deduction is actually quite low. In that case, you could give the maximum every year and then give the rest of your giving anywhere you want, because you have no use for the receipt anyhow.
While joint tax filing and account ownership is common in the USA, it is unheard of in some countries. This can create several problems when reporting your taxes the least of which is probably your charitable deduction. Ask the charity or your tax preparer about this. You may find that it is better to give $300 to the GSEF in your name and $300 to the GSEF in your spouse’s name. Similarly, you could make your church donations in your name and your GSEF donations in your spouse’s name. This will effectively double your maximum deductions for the year in many cases.
Do what’s right for you
Though Vagabond Finances tries to stick to…well…finances, at the end of the day we are talking about finances only because finances can help (or hinder) us to live impactful lives abroad for the long-haul. We want to Earn, Save, Invest, and plan for Taxation and Retirement, so that we can stay on the field and make a difference. Similarly, when it comes to our charitable giving, we shouldn’t sacrifice giving to a meaningful cause just because it saves us a few more dollars in taxation.
If I hate eggplants but adore rats, bedbugs, and cockroaches, I might search and search online until I find the world famous Vermin Fund for the protection of my little friends. Given my passionate feelings, I’m not going to give a dime to the GSEF even if it saves me several hundreds of dollars in taxes. I don’t believe in what they are doing, and I won’t support them. However, I will happily sacrifice those hundreds of dollars in taxes to support the Vermin Fund (VF) because Vagabond Finances (VF) told me I should let my tax dollars dictate my charitable giving and convictions.
What to do with the savings
Let’s imagine for a moment that you really did manage to find a Vermin Fund in your country, were able to give in your name and in your spouse’s name, and were able to deduct 10% off of your taxes up to a maximum deduction of $500 each. That $1,000 is like found money. It’s like getting a tax refund you weren’t expecting or like someone giving you a $1,000 reward for finding their puppy. What should you do with a surprise surplus? Come on, Vagabonds, what should you do with it? Most people would spend it, but we need to be made of heartier stuff if we’re going to Win Financial Freedom and Give Recklessly. So how should we use this “found money”? The two best options I can think of are:
1 – Invest it in your retirement account, house fund, etc. That’s a great step toward Winning Financial Freedom and Reckless Giving!
2 – Give that extra $1,000 to your favorite charity! That’s also a step toward Winning Financial Freedom and Reckless Giving!
Don’t spend it; invest it in your future and in the ministries you care about.